Mortgage lenders continue to add more weight to credit scores in evaluating whether to grant credit and also in pricing their loans. A difference of one point on a credit score can easily make a .125% difference in interest rate. On a $650,000 loan that’s $52.39 per month. That’s like a free tank of gas or twenty-one tall lattes. No wonder consumers are curious about credit scores. We therefore give you the top ten answers to the top ten questions about credit scores.
NUMBER TEN: What is the highest possible score? There is a slight difference between the three reporting agencies. Beacon scores range from 300 to 850, Fair Isaac from 360 to 840, and Empirica from 336 to 843.
NUMBER NINE: Can anyone determine the exact impact on my score for certain things, such as a 5 day late payment, a 30 day late payment, opening a new account, or having a collection filed? The short answer is “no.” But generally speaking, payment history has the most weight, new credit has more weight than old credit, and a high balance compared to the credit limit has more weight than a lower balance.
NUMBER EIGHT: Will closing accounts increase my score? It might, but paying balances down will have more effect than closing accounts with no balance.
NUMBER SEVEN: What is the difference between a hard inquiry and a soft inquiry? A hard inquiry is when a consumer seeks an extension of credit. Hard inquiries are posted to your file and are visible to potential creditors. A soft inquiry is when someone whispers into your ear, asking you what time it is. (Gotcha! Just wanted to know if you are reading carefully.) No, a soft inquiry is when a consumer requests his or her own report. Only a hard inquiry affects the credit scores, and the inquiry factor is less than 5% of the total credit score.
NUMBER SIX: Is there a website where I can play “what if” to see exactly how different actions will impact my credit score? The answer: “no, sorry.”
NUMBER FIVE: How long does it take after correcting an error on my report for the credit score to change? All agencies have (for a fee) a process for updating scores within as little as five days after receipt of documentation proving the error. Your lender can coordinate the process.
NUMBER FOUR: How long does a negative item stay on my report? The short answer is, “seven years.” The long answer is all items, negative or positive stay on your report for seven years.
NUMBER THREE: I get a different score from each agency. Which of my three credit scores does a lender use? For a couple, most lenders will use the lowest middle score of both borrowers. For a single person, they will use the middle score.
NUMBER TWO: Do credit reporting agencies have a direct line which will enable a consumer to speak with a real live person? Yes, they do. Your lender can give you the number, which can also be found on your credit report.
NUMBER ONE: What is the likely impact on my credit score for a mortgage payment that is 30 days late? The reason this is the number one question is that it is the most important. First: your credit score will take a hit somewhere in the 100 point range. This can be serious. A drop from 720 to 620 could disqualify you for a special loan program that you need for example. Second: a great many lenders will be reluctant to loan at all to borrowers with recent mortgage lates. SO, DON’T EVER BE 30 DAYS LATE WITH YOUR MORTGAGE PAYMENT. EVER.
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